Cheung Him Shing v. Lui Ho Cheung

DCCJ 3939/2022

[2024] HKDC 502

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3939 OF 2022

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JUDGMENT

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A.  Introduction

1.By summons dated 16 May 2023, the Plaintiff (“P”) applied for summary judgment under Order 14 rule 1 of the Rules of the District Court, Cap 336H that the Defendant (“D”) do forthwith make restitution of or return, pay release or transfer of a sum of HK$155,000 (including interest accrued thereon) to P as money had and received.

B.  P’s Case

2.P claims to be the victim of a telephone scam in late May 2022.

3.He mistakenly transferred HK$300,000 and HK$400,000 (HK$700,000 in total being the “Defrauded Sum”) from his HSBC bank account (No. 841-454465-888) (“P’s Account”) to the bank accounts of 2 first-tier recipients, namely Chan Sin Yung (“Chan”)’s account with ZA Bank (No. 883009396159) (“Chan’s Account”) and Yu Wing Man (“Yu”)’s account with Livi Bank (No. 756075543222) (“Yu’s Account”) (collectively as the “First-Tier Recipients”), on 25 May 2022 and 26 May 2022, respectively.

4.Chan and Yu then respectively transferred $55,000 and $100,000 to D’s bank account with Livi Bank (No. 756026612795)(“D’s Account”) on 26 May 2022 at 11:28:54 and 14:56:48.

5.P therefore claims against D for the total sum of $155,000 (“Subject Sum”) as money had and received.

6.During the hearing, P confirmed that his case was based solely on money had and received and he had no proprietary claim against D.

C.  D’s Case

7.D opposes P’s application on the grounds that:

(1)  P cannot establish the Subject Sum of HK$155,000 to be traceable proceeds.

(2)  P’s case of him being a victim of fraud is doubtful and triable per se.

(3)  D received the Subject Sum during the course of his cryptocurrency trading as a bona fide purchaser for value without notice.

8.D further explained that he used D’s Account for the purpose of cryptocurrency transactions. D had been trading a particular kind of cryptocurrency named “USDT” since 2017 using several different platforms including one named AAX. During those trading activities, D’s paramount concern was to avoid getting scammed but as far as the purchase money was properly paid, he would not question how the buyers fund their purchases.

9.D agreed that he did receive the payments of HK$55,000 and HK$100,000 from Chan and Yu but those were part of the genuine USDT transactions paid for the purpose of purchasing USDT from D.

D.  Relevant Legal Principles on Summary Judgment

10.The relevant legal principles on summary judgment are well settled. They are recently summarised by Madam Recorder Rachel Lam SC in John Joseph MC Gee v Nold (HK) Limited [2022] HKCFI 3598 at §21:

“(1) It is trite law that the mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since it is incumbent on the defendant to raise a defence or triable issue, and in so doing to descend upon particulars. The issue is not whether the defendant is believed, but whether the assertions are believable;

(2) That whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute;

(3) Furthermore, the Court will not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini-trial on complicated factual issues;

(4) If the evidence of the defendant is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence and judgment will be given to the plaintiff;

(5) Unless it is obvious that the defence is frivolous and practically moonshine, O.14 ought not be applied.”

11.Further, leave to defend conditional on the full amount claimed being paid into court may be ordered where the defence is shadowy or there is little or no substance in it or the case is almost one in which summary judgment should be ordered: John Joseph MC Gee at §22.

12.Further, leave to defend conditional on the full amount claimed being paid into court may be ordered where the defence is shadowy or there is little or no substance in it or the case is D does not dispute the above legal principles but wishes to emphasize that although D bears the burden to demonstrate a credible defence, P as the applicant needs to demonstrate the strength of his case in the first place. As Cheung JA (as he then was) held at §14 of Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822:

"14. It is well-established that the burden on the defendant in a summary judgment application is to show that he has a credible defence and he must condescend to give particulars of his defence. However, this does not mean that once the plaintiff invokes the application and irrespective of the strength of his case, the defendant bears all the burden of showing that there are triable issues in the case. This is because the starting point in a summary judgment application is that it should only be invoked when there is no defence to the claim. This means that the plaintiff must in the first place demonstrate that the defendant has indeed no defence. This requirement is further recognised in the procedural rules which mandate the plaintiff to state his belief in the verifying affidavit that there is no defence to the claim. This requirement must be kept in proper perspective when assessment is made of the strength of the application, otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff's claim or its inherent strength and weakness ... "

E.  Was there Enrichment at the Expense of P?

13.Claims by a victim of fraud for the money that he had been defrauded are not uncommon and are regularly considered by the Hong Kong Courts. Lisa Wong J in Ferrari North America, Inc v Changhon International Energy Co., Limited & Ors [2018] HKCFI 1603, at §12 observed that “A victim of fraud would prima facie have a claim in money had and received and may assert a proprietary claim against a recipient insofar as the fraudulently obtained funds are traceable into his hands, unless the recipient can establish that he is a bona fide purchaser for value without notice”.

14.As established by the landmark case of Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 (§§66-67), to establish money had and received, which is a species of claim for restitution based on principles of unjust enrichment, a useful framework is to ask four questions:

(a)  Was the defendant enriched?

(b)  Was the enrichment at the plaintiff’s expense?

(c)  Was the enrichment unjust?

(d)  Are any of the defences applicable?

15.P bears the burden of establishing an affirmative answer to the first three questions: RPB SA v Xinwangyi Trade Ltd & Os [2022] HKCFI 2541 at §22.

16.As to the “at the expense of” question, the principles laid down by the UK Supreme Court in Investment Trust Companies v Revenue and Customs Commissioners [2018] AC 275 have been adopted and followed in Hong Kong in AXHT Co Ltd v Freeway Finance Co Ltd [2020] 4 HKLRD 133 at §43 and RPB SA at §23 as follows:

(1)  Whether a defendant has been enriched “at the expense of” a plaintiff depends on whether there has been a transfer of value between the parties in the sense that the defendant has received a benefit from the plaintiff and the plaintiff has suffered some form of economic loss through his provision of the benefit;

(2)  A “but for” causal connection between the plaintiff’s being worse off and the defendant’s being better off is not sufficient in itself to constitute a transfer of value. Nor is the requirement satisfied by a connection between the parties’ respective benefit and loss merely as a matter of economic or commercial reality;

(3)  The requirement would normally be satisfied if the transfer is direct, but there may also be other situations where an indirect transfer would suffice, for example: (a) through an agent; or (b) the intervening transaction is found to be a sham, or that a set of related transactions operated in a coordinated way as forming a single scheme or transaction such that it would be unrealistic to consider each of the individual transactions separately; or (c) the property received by the defendant from a third party is one that the plaintiff can trace an interest into; or (d) where the plaintiff discharges a debt owed by the defendant to a third party;

(4)  When the defendant has not received a benefit directly from the plaintiff, no question of agency arises, and where the benefit does not consist of property in which the plaintiff has or can trace an interest, it will generally be difficult to maintain that the defendant has been enriched at the plaintiff’s expense.

17.The question of “at the expense of” was particularly prominent in RPB SA which is also a case about a victim of fraud (email fraud this time) suing both direct recipient (D19) and indirect recipients (D15 and D16). In that case, the court was presented with detailed information about the bank accounts of the direct recipient D19 and was able to conduct a detailed analysis of the fund flow. After such analysis, it was concluded that (1) D19 as the direct recipient received a sum of US$220,800 as part of the stolen sum which was mixed with its own pre-existing credit balance of US$464,543.69; (2) Applying the first in and first out rule, the entire sum of $212,325 received by D15 came from the pre-existing credit balance of D19’s account; (3) D16 received a total of US$530,260 through four transactions from the account of D19 but applying the same rule only two transactions totalling US$182,360.31 came from the stolen sum.

18.Based on such analysis, it was held that D19 and D16 (to the extent of US$182,360.31) were indeed enriched at the expense of the plaintiff. Regarding D15, even though it was accepted that there are various ways to meet the “at the expense of” test even for indirect transactions, the plaintiff must show that such enrichment was at the plaintiff’s expense, not that of an intermediate recipient. Not able to discharge such a burden, the plaintiff could not demonstrate a prima facie sustainable unjust enrichment claim against D15.

19.In the present case, D is also an indirect recipient receiving payments only from Chan and Yu who are alleged to be the direct recipients of the sums mistakenly transferred by P. There is no allegation that D is in any way connected with Chan or Yu or implicated in the relevant telephone scam. It therefore is incumbent upon P to prove that any enrichment of D was “at the expense of” P, not that of Chan or Yu.

20.Unlike the RPB SA case, no information or material relating to Chan’s account or Yu’s account is available. We have no idea how much credit balance there was before the Subject Sum was transferred to Chan’s Account or Yu’s Account. We have no information on how many transactions there were and the particulars thereof between the inward transmission of the Subject Sum to Chan’s Account and Yu’s Account and the outward transmissions from Chan’s Account and Yu’s Account to D’s Account. We do not know if the money that D received from Yu and Chan came from those defrauded from P at all and if yes, how much of the sum received could ultimately be traced to P’s account. In other words, we do not know if D stands in a position similar to that of D15 in RPB SA where the unjust enrichment claim totally failed, or that of D16 in RPB SA where the unjust enrichment claim could be partially established.

21.P tried to distinguish RPB SA on the ground of a police letter dated 25 July 2022 (“Police’ Letter”) which states:

“On 2022-04-30, VTM (M/CHEUNG) received a cold call from an unknown male (WP) who claimed to be staff of a purported money lender and offered low-interest loans. VTM expressed interest in applying for a loan. WP requested guarantee fee of $700,000-HKD from VTM. As instructed, VTM made one remittance of $300,000-HKD into a ZA Bank A/C 883009396159 and one remittance of $400,000-HKD into Livi Bank A/C 756075543222 on 2022-05-24 and 2022-05-26 respectively. After police investigation, some fund was transferred from the above first layer account into VB Livi Bank A/C 756026612795 which has been temporarily frozen by police at this stage.”

22.P argues that this letter alone is sufficient to prove that D’s enrichment in receiving the Subject Sum from Chan and Yu was “at the expense of” P.

23.I am afraid I cannot accept that submission. The Police Letter may be a good starting point for P to commence its investigation, but it could hardly be conclusive evidence of a case against D by itself.

24.Firstly, the Police Letter is only a piece of hearsay evidence with the author unidentified and more importantly the source and basis of the statements thereunder unknown.

25.Secondly, the letter is unclear as to what it means about “some fund was transferred from the above first layer account into” D’s Account. It does not identify the source, amount or other particulars of this “some fund”. Even taking it to the highest, this letter indicates that some fund was transferred from Yu’s Account and Chan’s Account to D’s Account. However, this does not purport to demonstrate the key question as to whether such fund transferred (or any part thereof) was at the expense of P or at the expense of the intermediate recipients Chan and Yu.

26.Without any information about the fund flow of Yu’s Account and Chan’s Account, P has not demonstrated that D’s enrichment was “at the expense of” P’s loss:

(1)  On the face of it, the amounts of HK$300,000 and HK$400,000 paid by P to Chan’s Account and Yu’s Account on 25 May 2022 and 26 May 2022 are of different amounts from those transactions that deposited the Subject Sum of the total of HK$155,000 into D’s Account;

(2)  The proximity in time cannot give rise to any reliable inference that the HK$155,000 paid into D’s Account must be traced back to the Defrauded Sum when a multitude of possibilities exists. For example, such a sum may come out of the First-Tier Recipients’ own funds previously deposited in their accounts and may also come out of payment or payments made by some third party on the same dates of 25 May 2022 or 26 May 2022. Using the situation in RPB SA as an example, P has no basis to say that D is more likely to be in a position akin to that of D16 rather than D15 therein;

(3)  It is also unclear as to the sequence of the transfer of HK$400,000 from P’s Account to Yu’s Account and the transfer of HK$100,000 from Yu’s Account to D’s Account. Both transactions occurred on the same day 26 May 2022. Whilst there is a time stamp for the transfer of HK$100,000 to be at 14:56:48 of 26 May 2022, the bank documents of P’s Account do not have a similar time stamp and only indicate the date of the transaction of $400,000 to be 26 May 2022. Needless to say, if the transfer of HK$100,000 occurred earlier than the transfer of HK$400,000, the HK$100,000 transferred from Yu’s Account to D’s Account would have little to do with the Defrauded Sum.

27.In the circumstances, there is no basis to hold that D’s enrichment was at P’s expense. On that basis, P has not demonstrated a prima facie sustainable unjust enrichment claim against D.

F.  Was there a Mistake?

28.D further questions the validity of P’s evidence on the existence of fraud and mistake :

(1)  D notes that P only asserted that “The Plaintiff mistakenly transferred a total sum of HK$700,000” without providing details of such mistake in the Statement of Claim and that even though the content of the Police Letter (as already quoted above) was also set out in the Statement of Claim, the description of the scam in this letter was not formally adopted by P in the Statement of Claim which only averred that “On 25^th July 2022, the Plaintiff received a letter from the Police, stating amongst others that:” before quoting the content of the Police Letter;

(2)  D points out that there are a lot of holes in P’s story. There is no information on:

(a)  What happened after 30 April 2022 when P indicated an interest in applying for a loan, before P remitted the Defrauded Sum to Chan’s Account and Yu’s Account in late May 2022 and, in particular, how he was instructed to do so;

(b)  Details of the conversation(s) between the unknown male (WP) and P, including whether any name(s) of the WP and of the purported money lender were mentioned, as well as other factors which led to P's belief that he was indeed applying for a loan from a money lender;

(c)  How actually the dealings between P and the unknown male became a scam, or, in other words, what is the falsity or mistake;

(d)  How P discovered the fraud/mistake several days after the transmittance of the Defrauded Sum.

(3)  By reason of the scarcity of the particulars and information about the alleged scam, D argues that the allegation that P fell into the telephone scam itself is doubtful.

29.D relies on the case of Tsang Tse To v Sun Bon International Logistic Ltd [2023] HKCFI 740 to argue that if the existence of the alleged scam is doubtful, the existence of a mistake is doubtful and there is a triable issue.

30.The facts of Tsang Tse To are significantly different from those of the present case. In that case, there was an abundance of evidence questioning the existence of a scam which led to the decision of a triable issue. I do not find it to be of much assistance except for the general principles stated therein.

31.On the other hand, I do find the arguments of D to be of substance. By way of submissions, Counsel for P argues that the mistake was the mistaken belief that there was a genuine loan to be provided upon the provision of the guarantee. However, such clarification is neither pleaded nor affirmed by P. P has not even pleaded or affirmed that no loan was actually provided even though that appears to be the basis of the submissions of P’s counsel.

32.It is trite that the statement of claim must be complete and good in itself before any summary judgment may be entered upon it: Li Chuen Kwai v Po Lam Construction Development Ltd HCA 2376/2013, unrep., 24.9.2014 at §11.

33.I find that there is no sufficient pleading or evidence on the alleged “mistake” to justify a claim for unjust enrichment. I would have granted unconditional leave to defend on this ground.

G.  Was D a Bona Fide Purchaser for Value without Notice?

34.D further provided a rather detailed account of his cryptocurrency investment or trading business and asserted that he was a bona fide purchaser for value without notice receiving those payments from Chan and Yu in the course of his USDT trading activities or has changed his position. For that purpose, D also provided various documents showing his USDT trading transactions including in particular, his sale of 12,594.45843828 USDT to a person described as SinYung Chan (i.e. the same name as Chan) in the amount of HK$100,000 and a payment record by one Yu Wing Man (i.e. the same name as Yu) sent for the purpose of this transaction. Notably, D could not provide similar documents regarding his transaction with Chan about HK$55,000. He claimed that the transaction record is now inaccessible as the relevant platform AAX was closed down in November 2022.

35.P mounted a barrage of forensic arguments attacking the credibility of D’s story, including that:

(1)  There has been an unusual amount of cryptocurrency trading activities (110 transactions within just a 7-day period at a total amount of over HK$2.7 million) around the clock;

(2)  The relevant screenshots provided by D were not sufficient to show that the transaction of sale and purchase of USDT between D and Sin Yung Chan did occur;

(3)  It is rather strange that D could provide screenshots of one transaction concerning HK$100,000 but not the other transaction concerning HK$55,000;

(4)  Given the nature of cryptocurrency, D should be able to provide further documents showing his ownership and sale of USDT coins through other means even assuming the AAX platform is no longer accessible;

(5)  D accepted payments from people unknown to him and bearing no apparent association with the counterpart of the transactions. This is not a commercially acceptable way;

(6)  D described the transactions that he was involved in as investment rather than trading and misled Livi Bank when opening D’s Account; and

(7)  D did not explain how he could buy a large amount of USDT coins at a lower price in his own way.

36.Many of P’s arguments are forensically sound and do call for explanation. However, this is a summary judgment application and the law is trite that I do not conduct a mini-trial on complicated factual issues and the threshold that D needs to pass at this stage is a fairly low one of being believable.

37.Overall, D has adduced some evidence to show that he has been actively involved in USDT trading or investment at the material times and it is arguable that the dealings with Chan and Yu and the receipt of the Subject Sum were in the course of those activities with proper consideration, i.e. USDT coins provided. D further provided some, though less than full explanations to the queries raised by P. On the affidavit evidence alone, I cannot come to any conclusion that despite the closing down of the AAX platform, D must have been able to but decided not to provide transaction records of his USDT transactions through other means. Similarly, I cannot come to any conclusion on what is a commercially acceptable way of doing USDT trading and whether the practice of D fell short of the acceptable way in the circumstances to call into question the issue of good faith. The fact that D could provide records of one transaction but not the other transaction in my judgment is strengthening rather than weakening his credibility. D apparently is not trying to perfect his case.

38.At this stage, I am not prepared to dismiss this defence of D’s as being moonshine. I would have granted unconditional leave to defend if this is the only ground that D is able to rely on.

H.  Conclusion

39.Overall, I dismiss P’s application for summary judgment against D in light of my conclusion that P has not demonstrated a prima facie case that D’s enrichment was at the expense of P. Moreover, I would have granted unconditional leave to defend on the grounds that there are triable issues on the alleged mistake on the part of P and D’s defence of a bona fide purchaser for value without notice though such leave is unnecessary in light of my dismissal of the application.

40.I make a costs order nisi that P do pay D’s costs of the summary judgment application, to be taxed if not agreed with a certificate for counsel.

41.The costs order nisi will be made absolute in the absence of any application for variation by way of inter parte summons within 28 days of the date of this Decision.

Ms Ann Lee, instructed by Chan & Tsu, for the Plaintiff

Ms Angel H Y Wong, instructed by Henry Chiu & Partners, for the Defendant